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First Person: Calculating My Future Net Worth

No one knows for sure how the future will play out. When it comes to planning for my future, though, I like to have a rough estimate of my net worth so I know how to budget in the present day. By looking at past trends and projected inflation, I'm able to tweak my saving and spending plans so I stay on track. I estimate my net worth 20 years from now, even though I won't reach full retirement age for another 27 years. I'd like to have a few years for wiggle room in case I stop working sooner than expected.

Figuring out my home's value

In order to figure out how much my home will be worth in the future, I looked at the average appreciation of homes in my area. Since I plan to stay in my home for the long term, I looked at the 10-year and 20-year appreciation rates. In Florida, homes appreciated 8 percent in the past 10 years and 72 percent over 20 years, according to statistics and graphs by Forecastchart.com. In 10 years, the home I bought in 2005 for \$183,000 may be worth \$197,640. I anticipate the value of my home by 2025 will be about \$314,769.

Estimating the future value of investments

When it comes to the value of my stock market accounts, I can't accurately predict what kind of return I'll get on my money. Therefore, I use a compound savings calculator to figure out how much money I should save every year if I expect a certain annual rate of return. I estimate I'll get an annual rate of return of at least 6 percent. According to the calculator, if I start with \$100,000 and save an additional \$4,873 a year, I'll have my goal amount of a half million dollars in 20 years. That means I need to invest at least \$406 a month in a moderately aggressive fund.

Staying out of debt

On the deficit side of my net worth are all my debts, loans and financial obligations. I know that by the time I am retired my home will be paid off. I expect to stay out of debt by using my emergency fund instead of credit cards. In terms of preventing medical debt, I am contributing to a health savings account and making sure my family has good health insurance.

Building up liquid savings

Although I don't have much in liquid savings at this time, I hope to build up my cash reserves by the time I'm retired. If I stick to my savings plan, I should have \$40,000 in a savings account in another 20 years. All I have to do is save about \$40 a week by skipping a few coffees and resisting the urge to buy a tabloid or pack of gum. In addition, I started a special savings fund for a new car, which I plan to keep fully funded at about \$40,000 in the future.

After making the calculations, I see that my future net worth will be about \$894,000 in the future. If I included smaller items such as furniture and artwork, I predict I'll reach my goal of a \$1 million net worth in another 20 years.

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